Do we really know why some Americans get wealthy but most don’t?

Indeed we do.

Most people in this country with a net worth of a million dollars or more were not born with genius-level IQs. They did not have superb connections. And they did not receive large inheritances.

More than 80% of them followed the same proven principles of wealth creation. These principles, while unknown to most, are easily understood by anyone of average intelligence.

You can learn more about them here – and in The Next Millionaire Next Door: Enduring Strategies for Building Wealth by Dr. Thomas Stanley and Dr. Sarah Stanley Fallaw.

Yet some critics – especially those who insist that wealth creation is primarily about good luck, good genes or good connections – claim that Stanley’s and Fallaw’s work is not valid because of “survivorship bias.”

They argue that economic “winners” and economic “losers” actually share the same habits, but Stanley and Fallaw didn’t notice this because their research focused exclusively on the affluent.

That claim is demonstrably false, with two exceptions.

Let’s start by identifying the habits of most wealth accumulators.

In The Millionaire Next Door:The Surprising Secrets of America’s Wealthy, Stanley listed seven common attributes of self-made millionaires:

  1. They choose the right occupation.
  1. They live well below their means.
  1. They allocate their time, energy and money efficiently, in ways conducive to building wealth.
  1. Their parents did not provide economic outpatient care.
  1. They believe that financial independence is more important than displaying high social status.
  1. Their adult children are economically self-sufficient.
  1. They are proficient in targeting market opportunities.

Overwhelmingly, economically successful individuals make choices and develop habits that create and build wealth.

These habits include integrity, optimism, ambition, persistence, resilience and frugality to name just a few.

There are plenty of people with little or no money late in life who embody many of these virtues, of course.

But in most cases they either failed to develop the skills to earn a higher income or were unwilling to live beneath their means.

(As I’ve mentioned in previous columns, if you make an annual contribution of $5,500 to a Roth IRA – just $458.33 a month – and earn nothing more or less than the 10% average annual return of the S&P 500, in 30 years you will have a million dollars, tax-free.)

Is it possible that someone can follow the traditional path to wealth creation – maximizing income, minimizing outgo, and religiously saving and investing the difference – and not end up wealthy decades later?

I would argue no, but with two exceptions.

The first is people who got derailed because of unfortunate or unforeseeable circumstances.

Maybe they were called up to war. Or suffered a debilitating accident or disease. Or maybe they just married the wrong person.

(A divorce can turn a million-dollar net worth into a $500,000 one real quick. Or a $10,000 net worth into a $5,000 one, for that matter.)

These people were on the right path – and may still be – but got at least temporarily deflected by circumstances beyond their control.

The other exception is folks who do everything right – educate themselves, work hard, pay taxes, save diligently, etc. – but then blow up their investment portfolios… or turn them over to someone else who does.

The other day, for example, I played tennis with a guy who fell into this latter category.

Born into modest circumstances in New York, he started his own business, worked hard for decades, became economically successful, then retired about 10 years ago.

He went to a major brokerage firm, told his new advisor that the money he was giving him was the result of a lifetime of work and all he had. His investment goal was just a modest return with preservation of capital.

His broker told him he understood completely.

He then put his entire portfolio into structured notes, ones that allowed him to share in the upside of the S&P 500 but with a principal guarantee.

That sounded reasonable. After all, the S&P 500 is a diversified, blue chip investment. Throw in a principal guarantee and what could go wrong?

In this case, everything.

The issuer and guarantor of the notes was Shearson Lehman. And when the company descended into bankruptcy with lightning speed during the financial crisis, the notes quickly became worthless.

My friend did get a quarter of his money back years later.

He sued the brokerage firm and received a settlement equal to half his original investment. His lawyer took half of that.

Telling me this story, he shook his head and told me he is still retired… but living a lifestyle that is a quarter of what he expected.

This story is by no means unique. Plenty of financial advisors have torpedoed their clients’ portfolios. Tens of thousands of other individuals have committed financial hari-kari themselves.

That is always a heartbreaker.

There are few financial tragedies worse than losing your life savings near the back end of your life.

That’s why it’s always important to focus on risk as well as opportunity.

And in the columns ahead, I’ll explain exactly how you can build and protect a seven- or eight-figure portfolio simply, easily… and safely.

Good investing,


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